Evening Wrap: ASX 200 reverses losses on China reopening rumours, iron ore hits US$100 a tonne

The S&P/ASX 200 closed 24 points higher, up 0.34%.

The local sharemarket reverses early declines thanks to another round of Chinese reopening rumours, iron ore miners and healthcare stocks did most of the heavy lifting to pull the index higher. Australian consumer confidence bounces, Fisher & Paykel shares surge on half-year results, Woodside's 2023 outlook disappoints and Collins Food expects inflationary headwinds to remain in place for FY23.

Let's dive in.

Markets

The ASX 200 opened -0.4% lower but spent pretty much the entire day steadily grinding higher. China was rumored to soon announce a policy to officially end its zero-Covid strategy, emphasising a low fatality rate (approximately 0.025%) for new variants and how lockdowns have achieved a historical success in protecting people's lives, according to Shanghai Macro Strategist.

• Materials led to the upside as the reopening rumours lifted iron ore heavyweights BHP, Rio Tinto and Fortescue close at least 2% higher

• Healthcare is on a 10-day winning streak led by CSL. Fisher & Paykel also pulled the index higher after rallying 9.8% on half-year results

• The market's reversal helped the Tech Index close 0.25% higher from session lows of -0.47%

• Real Estate led to the downside, in parallel with an uptick in bond yields. The Australian Government 10-year yield rose 1.4 percentage points to 3.61%

• 97 of the top 200 declined (49%)

Economy

Australian consumer confidence rose 1.8% to 83.1 for the week ended 27 November. 

• Consumer confidence has rebounded 5.6% in the last three weeks to the highest level since early October

• The Index is still very weak and down 22.9 points compared to the same week a year ago

• Only 6% of Australians expect ‘good times’ for the Australian economy over the next twelve months

• Long-term economic views remain constrained, with only 13% of Australians expecting ‘good times’ for the economy over the next five years 

Commodities 

“Commodities remained under pressure amid China’s battles with COVID-19. Protests added to demand outlook uncertainty for many commodities,” said ANZ senior commodity analyst, Daniel Hynes. 

• Brent crude +2.8% to US$78/bbl

• Copper +1.9% to US$3.68/lb

• Iron ore futures +2.9% to US$100.95/t

Latest news

Post market brief

Some left field and spicy Chinese reopening rumours helped the ASX 200 rally from session lows of -0.40%. Two things come to mind:

• Reopening rumours popped up a month ago only to be rejected by Chinese officials

• Is this a buy the reopening rumour and sell the news kind of play?

The ASX 200 continues to chop higher, with hardly any breathers since the late October rally. We now look to how Chinese officials respond to these reopening rumours and Fed Powell's speech on Thursday morning as the next major direction driving catalysts.

Encouraging, the ASX 200 VIX is sitting around a seven month low. From a trading perspective and more broadly speaking, a low VIX means that breakouts are more likely to stick and less choppy price action. Although from a contrarian perspective and previous lows, it could indicate a calm before the storm.

ASX 200 VIX chart (Source: Market Index)

Indexes

S&P/ASX 200: Big reversal. Short-term moving averages like the 20-day continue to play catch up.

XJO chart (Source: TradingView)

S&P/ASX 200 Energy: Big reversal after Woodside's 2023 production guidance missed expectations. Noise aside, the Index is trying to defend recent highs.

XEJ chart (Source: TradingView)

S&P/ASX 200 Healthcare: It's not often you see an Index go on a 10-day winning streak. Is this a sign of institutional accumulation in a defensive sector? It's run pretty hard from the 20-day moving average.

XHJ chart (Source: TradingView)

Major announcements

Large caps (>$1bn)

• Fisher & Paykel (FPH) +9.8% posted 1H21 revenue of $690.6m, down -23% but above the $670m guided by the company

  •  “Through the first half, there are positive signs that our hospital customers are working through their excess inventory holdings, and total group sales of our hospital consumables have increased sequentially on a month-by-month basis since May. This trend has continued in the second half to date.” said Managing Director Lewis Gradon 

• Sonic Healthcare (SHL) 0% has agreed to invest $17.8m to acquire a 199.99% stake in Microba, a gut health testing business

• Woodside (WDS) -0.35% full-year 2023 production guidance of 180-190m barrels of oil equivalent and capex between US$6-6.5bn, up a respective 19.4% and 48% compared to 2022 guidance (at midpoint)  

• Collins Foods (CKF) -19.8% posted 1H23 revenue growth of 15% to $614.3m but underlying net profits fell -14.2% to $24.8m due to ‘significant inflationary headwinds’ which were expected to remain for the balance of FY23 

Mid-to-small caps

• Ainsworth Game Technology (AGI) +9.1% AGM guided to approximately $18m in profit before tax for the six months ending 31 December 2022, up from $10.0m a year ago  

• Immutep (IMM) +4.3% signed a Clinical Trial Collaboration and Supply Agreement with Merck and Pfizer for a Phase I clinical study in patients with orthelial cancer 

• Sigma Healthcare (SIG) +3.3% secured a $250m extension of their receivables purchase agreement (debt) with Westpac 

• Alpha HPA (A4N) +1.7% delivered its maiden aluminium nitrate precursor crystal at its HPA First Project in Queensland. Optimisation of product quality and production levels are now underway  

• Praemium (PPS) -0.6% AGM notes total funds under administration rose 2% in 1Q22 to $41.4bn, achieved “against a backdrop of declining equity markets in that quarter”

• Atlantic Lithium (A11) -2.6% completed a resource and exploration drilling programme at the Ewoyaa Lithium Project, noting multiple high-grade intersections both within and outside current mineral resource estimates   

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